Computation of royalty on minerals is policy decision beyond court's expertise: Supreme Court

The Supreme Court on Thursday said that matters concerning computation of royalty levied on minerals is entirely a policy aspect under the domain of legislature and is beyond the expertise of the courts [Kirloskar Ferrous Industries Limited and Another v. Union of India and Others].

A three-judge Bench of Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra observed that courts must follow hands-off approach when it comes to adjudicating petitions challenging the validity of laws relating to economic activities.

The Court was of the view that the legislature needs to be allowed wide latitude in experimenting with economic legislation by virtue of it being an extension of the government’s economic policy.

"Complex issues of economic and fiscal nature cannot be construed by any strait-jacket formula or unidirectional approach. This Court has time and again recognised that a judicial hands-off approach must be followed qua economic legislation and that the legislature is to be allowed wide latitude in experimenting with economic legislation, by virtue of it being an extension of the government’s economic policy," the Court stated.

The Court said that a higher degree of deference needs to be shown by courts in such matters and sufficient flexibility should be given to the legislature and the executive in dealing with such economic matters.

The Court was hearing a plea challenging the validity of Explanation to Rule 38 of the Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016 and Explanation to Rule 45(8)(a) of Mineral Conservation and Development Rules, 2017 that stipulates computation of royalty to be levied for extraction or consumption of mined ores.

In its judgment, the bench noted that the issue is entirely a policy aspect under the domain of legislature and courts do not have economic expertise to sit in judgment over such decisions.

"For instance, in economic policy, the executive may decide on trade tariffs or subsidies based on extensive data and projections that aim to balance domestic industry support with global trade commitments. The courts, lacking the same level of economic expertise and without the authority to make trade-offs among competing policy objectives, is typically not equipped to second-guess these kinds of decisions," the Court observed.

The Court emphasised that its duty in policy-related cases is primarily to determine whether the policy falls within the scope of the authority granted to the relevant body.

"If the policy decision is within the executive's legal authority and has been made following proper procedures, the courts should defer to the expertise and discretion of the policy-makers, even if the policy appears unwise or imprudent. This restraint ensures that the courts do not impose its own perspective on policy matters that are rightly the responsibility of other branches," the Court clarified.

While taking note that the legislature itself has acknowledged the anomaly in these provisions concerning compounding of royalty for the purpose of computation of average sale price, the Court proceeded to grant one last opportunity to Union of India to consider the mechanism of computation of average sale for the purposes of determining the rate of royalty for all other minerals in terms of assailed provisions.

"We grant the respondents a period of 2-months from the date of pronouncement of this judgment to conclude the public consultation process undertaken for amending the MMDR Act initiated pursuant to the Notice dated 25.05.2022 and take a final decisive call in regard to the cascading impact of royalty on royalty in the calculation of the ‘average sale price’ by virtue of the Explanation(s) to Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017," the Court said while answering the challenge to the validity of assailed provisions.

The Court directed that the matter be listed again after two months to report on compliance with the Court's directions.

Senior Advocate AM Singhvi appeared for the petitioners.

Additional Solicitor General Shailesh Madiyal appeared for the Union of India.

[Read Judgment]